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Lyle Stein , Sr. Portfolio & Managing Director

Vestcap Investment Management

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Market. The TSX has had a very difficult year. 2016 was a banner year, and we are giving that back this year in terms of relative underperformance. However, you can forget the impact of the currency. That was the big surprise coming out of the 2nd quarter to now, with the Bank of Canada announcing they were not going to raise interest rates. There was a huge Short covering rally that took the loonie up to $.80. That nips into those returns. As an investor, as opposed to a trader, he suggests we just hold our positions. Had felt that at $.75, the Cdn$ was probably undervalued. As it got closer to $.80, he was looking to add more US names, particularly in those areas we don’t have in Canada. Feels the US market is overvalued and the Canadian market is undervalued, and that tends to correct over time.

Gold companies. There are 2 kinds of gold companies. Operating companies, the ones that build and operate mines, and royalty companies. He owns Goldcorp (G-T) and Agnico-Eagle (AEM-T). Agnico has been an outstanding operating company, and if you have to buy an operator, you won’t go wrong owning this. If you want an operator and get some leverage to the upside, buy when sentiment is negative, and Goldcorp is clearly the name. If you just want a safe, stable name on the price of gold, then Franco Nevada (FNV-T) is the right way to deal.

Canadian Banks share splits? Share splits are an interesting academic exercise. It typically occurs after a stock has moved, and they just want to make the shares more appealing to small investors. Feels share splits are meaningful in that suddenly more demand occurs.

He likes the industrial REIT space. A wonderful way to play Amazon (AMZN-Q), which increasingly needs warehouses closer and closer to the customer. This REIT provides that kind of space. The recent weakness has been because of recent acquisitions and interest rate fears.

Airlines are stocks that you want to rent, not own. They are notoriously volatile. You have seen the good side of the volatility, but the question is, what can it do to continue. What is out there that we don’t know? Everything seems to be hitting right in this company’s case, but you are working with margins that are very thin, and if anything bad happens, down it goes.

This has been a significant disappointment. He is looking at this more and more, because it has gotten hammered. The most recent investment by Fairfax got them out of a debt problem. We do pulses in Canada more than anyone else in the world, and that is good. The bigger issue is the importation, which has really hit the stock. India has some issues with our pulses. Pulses are a wonderful long-term play on the protein story. If they can fix their balance sheet and get over the India problem, then you might have a really good upside opportunity.

Had a good quarter, and the approval of their WGL acquisition is now just waiting for the regulatory side of things. One issue is commodity prices in Canada. Canadian gas production has been a headwind. Also, they made a foray into the US, to provide some natural gas infrastructure into the California grid. With the WGL acquisition they are looking to divest some of that and putting proceeds into the Washington DC area. Thinks this is just in “show me” mode. Dividend yield of 7.25%.

Long-term hold? One of the characteristics of a great investment is that it generates cash and grows that cash. For a young investor, this company would suit well. A wonderful stock to hold for the next 20-25 years. 4.6% dividend yield.

He owns this for the dividend and that the dividend has seen growth and will continue to see growth. An interest sensitive name, so there has been a little bit of weakness lately. This is bread-and-butter in any core investment portfolio in Canada. Its wireless business continues to show growth. The wire line is slowing down, but it is a cash generator.

They made an acquisition at the top of the oil market. Any company that makes a bad acquisition at the wrong price, will be carrying the consequence of that. They incurred a lot of debt. The management focus isn’t on getting the productivity out of the fields that they purchased, it is rather how do they unwind the mess they created. If looking for torque and you can stomach the fact that they have debt, this is a name that will get you the torque. If there is a continued down price in oil, this company is going to struggle. There are probably better names to own.

There has been a very interesting change in their business model. We saw the negative consequences last week when they put their earnings out. They continue to grow revenue per client, which is a wonderful metric that works over time. There is an interesting morphing of their business model which he likes. This is a monopoly. A good time to pick this up. Dividend yield of 3.8%. (Analysts’ price target is $50.)

There were a lot of Shorts between mid-July and the end of July, related to the closing of their US acquisition. This is probably the most domestic of the Canadian banks, and given all the concerns about the Canadian housing market, that has also caused problems. Dividend yield of 4.9% is a great income stream. This bank has an ability to grow, and you are not overpaying for it. He would like to get it in a bit more of a downturn.

Seniors’ homes is a growth market. There is not going to be enough places for baby boomers to retire, and this is a great way to participate. This has been weak lately on the basis of rising interest rates, which has hurt a lot of REITs. Ultimately, you own a hard asset with an ability to raise its prices down the road. Not a bad place to be.

Over time, this has probably been one of the best performing Canadian stocks over 50 years. They’ve had some difficult times, particularly with respect to their potential investments. To him, it is a great way to own the equivalent of what might be a railroad. No new pipelines are going to be built. They have the infrastructure in place. A good time to be picking this up. Dividend yield of 4.6%.

(A Top Pick Oct 3/16. Down 22.73%.) Had some difficulty with their mining, grades and production. Brought in a new CEO and are now putting this in a “show me” mode. When it turns, it will turn with a vengeance.

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